South Korean shares closed higher on Tuesday as retail investors went on a buying spree after the previous session's more than 5% plunge on profit-booking.

A positive lead from overnight gains on Wall Street boosted sentiment, despite gains being limited by ongoing concerns over AI spending and tensions in the Middle East.

The Korea Composite Stock Price Index, or Kospi, increased by 101.5 points, or 1.6%, to end at 6,358.95. The Kosdaq also rose by 43.37 points, or 5.9%, to close at 780.72.

In economic news, South Korea's annual inflation rate decelerated to 2.8% in July from 3.2% in June, according to data from the Ministry of Data and Statistics published Tuesday.

The latest print was lower than the consensus forecast of 3%, according to Investing.com.

On a monthly basis, the all-items consumer price index was down 0.2%, reversing the 0.1% increase between May and June.

Meanwhile, the country's core inflation rate, which excludes food and energy prices, rose to 2.6% from 2.5% in June.

In corporate news, KG Mobility (KRX:003620) secured an investment of $75 million from China's Chery Automobile (HKG:9973) to boost technology cooperation and partnership, according to a Monday release from the South Korean automaker.

The investment builds on a 2024 platform licensing agreement and a 2025 joint development deal for mid-to-large sports utility vehicles (SUVs).

Shares of KG Mobility jumped 6% at market close in Seoul, while those of Chery declined over 3% in Hong Kong.